What is Copper? Understand this metal well to trade effectively

Copper is one of the most important metallic elements worldwide, with widespread applications ranging from electronics, construction, to renewable energy production. As a popular tradable asset in the financial commodities market, copper attracts many investors due to its high liquidity and significant profit potential. This article will help you understand the fundamentals of copper, the factors influencing its price, and effective trading strategies.

What is Copper? Characteristics and Role in the Economy

Copper - a ductile metal with endless applications

Copper has become one of the most favored elements thanks to its unique physical properties. With its characteristic reddish-brown color, copper is highly ductile, and an excellent conductor of electricity and heat, making it an ideal material for electronics, mechanical engineering, and construction.

In practical applications, copper is used to manufacture electrical cables, printed circuit boards, electronic components, and connectors in industry. Additionally, copper is also used in jewelry and art due to its aesthetic appeal and durability.

The role of copper in the financial market

In the commodities market, copper has become an indispensable trading instrument. Price fluctuations of copper reflect the global economic situation, especially the demand from developing economies like China.

Trading in copper can be conducted through various flexible forms, including futures contracts, options, or ETFs. Investors can capitalize on profit opportunities from price movements based on market analysis.

Global Copper Trading Market: Supply, Consumption, and Outlook

Current market size of copper

According to Spherical Insights, the global copper market size reached USD 308.7 billion by the end of 2023, with a forecast to grow to USD 504.9 billion by 2033 — representing an average annual growth rate of 5.04%.

Distribution of copper mining production worldwide

Latin America accounts for the dominant share, with 40.5% of global production. Chile and Peru are the primary copper mining countries, together accounting for 35% of total output. Chile stands out as the country with the highest production and the largest copper reserves in the world. With modern technology application, the growth potential of copper mining in Chile remains substantial.

However, emerging trends show Asian and African companies increasing exploration activities and boosting production, reflecting the continuous rising global demand for copper.

Copper consumption demand - China leads

China accounts for up to 55% of the global refined copper consumption market, while overall Asia experiences the highest growth rate in consumption. China’s focus on renewable energy development is a key driver boosting copper demand. The electric vehicle trend also significantly contributes, as these vehicles use large amounts of copper for wiring systems, electric motors, and batteries.

Factors Determining Copper Prices

USD and exchange rates

Most of the global copper exports are traded in USD. When the USD weakens against other currencies, exporters receive less local currency despite unchanged production costs. This reduces profits and can lead to decreased copper supply in the market.

Global economic conditions

The health of the global economy directly impacts copper prices. During the 2008 financial crisis, copper prices plummeted by about 40%, from USD 3.42 to below USD 2, due to sharp declines in automotive and construction demand. Currently, since China accounts for a large portion of consumption, its economic situation is a critical factor.

Financial market developments and speculative activities

Events such as economic recessions, stock sell-offs, or political instability can create uncertain investment environments, prompting investors to seek safe assets like precious metals. Speculative activities via futures contracts by large funds can also significantly influence copper prices.

Policies and regulations from leading producing/consuming countries

Policy changes can significantly impact copper prices. For example, when China restricted copper exports in 2010, prices surged due to fears of supply shortages.

Oil prices and energy costs

Copper refining consumes enormous energy—about 30% of mining costs are energy-related, which can rise to 50% when processing ore. Rising oil prices increase production costs, affecting market prices.

Substitution potential of other metals

In some applications, copper can be replaced by other metals, creating competitive pressures and price volatility.

Copper vs Silver and Gold: Which is the Best Choice?

From this comparison, copper is suitable for investors focusing on industrial demand with the lowest cost. Silver and gold are precious metals with significantly higher prices, mainly serving as stores of value and hedging instruments.

Copper Price History: Boom and Bust Periods

2014-2016: Recession phase

Copper prices dropped sharply by about 40%, from USD 3.42 to below USD 2, due to slow Chinese economic growth and oversupply.

2017-2018: Recovery

Prices rebounded thanks to increased demand from China and limited supply, rising above USD 3.

2018-2020: Volatile fluctuations

US-China trade tensions and the COVID-19 pandemic caused a global recession, pushing prices below USD 2 in March 2020. Subsequently, economic stimulus packages supported a strong recovery.

2021-2024: Record upward trend

Demand from renewable energy, electric vehicles, and green infrastructure surged. Copper prices hit an all-time high of USD 5.2 in April 2024 and currently hover around USD 4.8.

Copper Price Outlook: Fundamental and Technical Analysis

Supply and demand balance - Positive factors

According to the International Copper Study Group (ICSG), although the world currently faces copper oversupply, this has been significantly revised downward from previous forecasts. Demand for copper is expected to remain high due to green industries, infrastructure, and electric vehicles continuing to grow strongly. Supply will also increase slightly from new mines and current production, but not enough to meet long-term demand.

Interest rate environment supporting price increases

Despite a global cycle of rapid interest rate hikes since 2022, major central banks like the Fed are expected to cut rates as inflation cools. This will weaken the USD and boost copper prices, as precious metals often have an inverse relationship with the dollar.

Technical analysis indicates continued upward trend

On the 1D chart, copper prices have remained within a strong upward channel since mid-March 2024, with a 22% increase. Technical support levels are maintained, and the Stochastic RSI indicator in oversold territory suggests a short-term rebound potential.

Conclusion: Both fundamental and technical factors support an upward trend for copper, especially with expectations of rate cuts in late 2024-2025 and a global shift toward green energy.

How to Trade Copper Effectively

Futures exchanges

Exchanges like Shanghai Futures Exchange (SHFE), Chicago Mercantile Exchange (CME), and London Metal Exchange (LME) offer copper futures and options. Through brokerage firms, traders can access market data, expert advice, and risk management tools.

ETFs - Flexible options

Exchange Traded Funds such as iShares Copper Trust or United States Copper Index Fund allow investors to access copper conveniently, similar to stock trading. Benefits include diversification and no need for physical storage.

Physical copper

Purchasing physical copper suits large organizations with strong financial capacity. They can exploit price differences by buying low and selling high, but this method requires substantial capital.

CFD (Contract for Difference)

CFD trading enables speculation on copper price movements without owning the physical asset. Investors can open long or short positions, using leverage to increase profits. However, risks are high, and strict risk management is essential.

Copper mining/production stocks

Holding shares of copper companies allows investors to benefit from profit growth as copper prices rise. Usually, rising copper prices lead to higher corporate profits.

Successful Copper Trading Strategies

Deep fundamental research

Investors should analyze copper supply and demand, price forecasts, global economic health, political conditions, and industry trends. Key indicators include GDP growth, public investment, and industrial output.

Applying professional technical analysis

Use technical tools like indicators and price charts to identify trends and potential patterns. This helps pinpoint entry and exit points accurately, maximizing win rates.

Strict risk management

Determine acceptable risk levels and use appropriate leverage based on financial capacity. Diversify portfolios across different assets. Always set stop-loss orders to protect capital.

Understanding trading instruments

Master the features and rules of instruments like futures, options, and ETFs to optimize their use according to market conditions.

Continuous monitoring and adjustment

Markets constantly change, so investors should regularly evaluate performance, learn from experience, and adjust strategies to optimize results.

In summary, copper is an attractive trading asset with high profit potential, but success requires analytical skills, risk management, and patience. With the growth of green energy and increasing global demand, copper will continue to be a noteworthy investment tool in the coming years.